Cue Health Inc
NASDAQ:HLTH
Earnings Call Analysis
Q4-2023 Analysis
Cue Health Inc
Cue Health achieved a total revenue of $19 million in the fourth quarter, exceeding its guidance. This was a notable increase from $17.5 million in the third quarter of 2023. The strong revenue performance was mainly attributed to the success of the Cue Reader installations and the growing adoption of the Cue Integrated Care Platform. In the whole year, Cue reported a total revenue of $70.9 million, driven primarily by the private sector which contributed 89% of the sales. However, adjusted for one-time inventory charges, the gross profit for product was at a loss of $2.7 million and an adjusted net loss of $49.1 million was reported for the period, highlighting challenges in profitability.
On the operational front, Cue Health obtained two significant FDA authorizations, including a de novo approval for at-home and point-of-care COVID-19 molecular tests, highlighting the company's commitment to bringing innovative health solutions to the market. They expanded their home collection test kits offering to 16 different types through the Cue Lab product line, catering to various health concerns. Furthermore, projections for an RSV test approval in Q3 and a flu molecular test de novo decision around the same time reflect their proactive pipeline management. As a strategic move, Cue decided to delay clinical studies for the chlamydia and gonorrhea test to preserve capital in the near term.
Cue has prioritized cost containment by implementing measures that reduce their cost structure by over $200 million on an annualized basis. Their goal is to optimize the use of cash while preserving the ability to pursue long-term growth opportunities. Looking forward, Cue has provided revenue guidance for the first quarter in the range of $9 million to $11 million. Additionally, with a clear focus on expanding their test menu and increasing the installed base of the Cue Readers, they are well set for driving adoption and leveraging the pull-through effects of their Cue Integrated Care Platform.
Cue Health is well-positioned for a substantial 2024 with several products in the works awaiting authorizations, such as herpes, Mpox, RSV, and flu tests. The optimism is fueled by the absence of an approved RSV test for home use, demonstrating the potential for filling an unmet need. Cue anticipates that their Cue Lab and Cue Pharmacy verticals will become a considerable part of the business, indicating their intention to drive growth through diversified health solutions. The automated production lines set a foundation for manufacturing new testing products without significant further capital investment.
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Good day, and thank you for standing by. Welcome to the Cue Health Fourth Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.
I'd now like to hand the conference over to Caroline Corner, Investor Relations. Please go ahead.
Good afternoon, and welcome to Cue's Fourth Quarter and Full Year 2023 Earnings Conference Call. Joining me today are Ayub Khattak, Chairman and Chief Executive Officer of Cue Health; and Aasim Javed, Chief Financial Officer.
Before we get started, let me begin by reminding you that we may be making forward-looking statements, including statements related to the submission of any FDA applications and expectations around receiving clearance and authorization, expectations regarding production capacity, expectations related to the availability of our programs and testing volumes, the expected performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects as well as the impact of the COVID-19 pandemic.
These statements are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those described. These risks and uncertainties include, but are not limited to, those outlined in today's call as well as other risks identified from time to time in our public statements and reports filed with the SEC. Forward-looking statements that we make on this call are based on assumptions and beliefs as of the date they are made, and the company disclaims any obligations to update these statements, except as required by law.
In addition, on today's call, non-GAAP financial measures will be used. Reconciliations between GAAP and non-GAAP financial measures are included in our earnings release. Finally, I would like to mention that the press release and a recording of this call are available on the Investor Relations page of our website.
With that, I would like to turn the call over to Ayub.
Thank you, Caroline, and thank you, everyone, for joining us today. We're excited to share our fourth quarter results and significant progress we made in 2023. We reported total revenue of $19 million in the fourth quarter, ahead of our guidance, driven by strong pull-through for our installed base of Cue Readers and the continued adoption of our innovative Cue Integrated Care Platform.
2023 was a year of significant milestones for Cue. We obtained 2 FDA authorizations, specifically a de novo approval for at-home and point-of-care COVID-19 molecular test, the first molecular diagnostic and the first respiratory test ever to receive full FDA approval for home use and authorization for molecular Mpox test, our first sexual health test. In 2023, we also submitted our RSV test and flu test for de novo approval and were awarded a nearly $30 million contract from BARDA to develop all the way through full regulatory authorization a combined test for flu, COVID-19 and RSV for home and professional use.
In addition to our work on our flagship Cue Health Monitoring System menu, we also expanded our Cue Integrated Care Platform offering significantly in 2023. We now offer 16 home collection test kits through our Cue Lab product line, including test kits for categories like heart health and sexual health. Through Cue Lab, we empower individuals to conveniently collect test samples at home, obtain their lab results digitally and interact with clinicians for lab result interpretation and follow-up action. Rounding out our offering on the treatment side, we've extended our original electronic prescription and delivery capability for infectious diseases like COVID-19 and flu to provide treatments for many more common health needs. For example, our treatment offerings now include therapeutics for sexually transmitted infections, GLP-1s for weight management and anti-viral for cold sores.
In short, we're proud of the great progress we made in 2023 in driving forward our vision of empowering people to live their healthiest lives. And we accomplished all this while streamlining our operations over the last year, reducing our cost structure by over $200 million on an annualized basis. These milestones have positioned us for an exciting 2024, and we are anticipating significant progress on our #1 strategic priority, menu expansion on the Cue Health Monitoring System.
Looking ahead now, I'd like to provide some updates on test menu expansion for the Cue Health Monitoring System. First, the Cue RSV Molecular Test was submitted to the FDA for de novo approval last May, and we received a response to FDA feedback. We were asked to provide additional clinical data reflecting the addition of more infants and elderly into our clinical population. We successfully executed the clinical studies to collect those additional data, saw very good performance and submitted the additional data to FDA.
We anticipate an approval for RSV to come in the third quarter of this year. Once we have approval, it's our intention to immediately launch the test to our customers for use of our installed base of over 0.25 million Cue Readers. Additionally, we believe that approvals of additional tests in our pipeline will help grow our installed Reader base.
Our flu molecular test has also sent to the FDA for de novo approval last year. During the review process, the FDA asked that we provide a greater number of clinical samples for flu B, which has had a low instance over the last 3 years with almost no circulation in the Northern Hemisphere. We conducted additional clinical studies in the Southern Hemisphere, and we're able to collect a sufficient number of flu B samples to meet the FDA's requirement. We are still working on providing additional stability data for higher temperature storage as requested by the FDA, and thus, we would expect the de novo decision for flu later this year in the third quarter. In January, we announced that the FDA had declined to issue in EUA for our Flu + COVID multiplex test. You may recall that this is our first multiplex test submission and sought to enable use for both at home and point-of-care use. This test performed very well in our clinical studies for both flu and COVID-19. However, the feedback that the FDA had was primarily for us to use a different comparator test for COVID-19 and to provide more real-time stability data. We are in active dialogue with the FDA to address these items. We hope to resubmit this application and achieve authorization in the second half of the year.
To complete our respiratory pipeline update, we're making strides with our combined flu, RSV and COVID all-in-one multiplex test supported by a $28 million BARDA contract. We plan to start clinical trials this summer in the Southern Hemisphere and aim to have this test on market by the end of 2024 as an EUA, progressing to a full clearance in 2025.
We have planned this 2-stage approach to getting to market with this test, and the program is funded through the full clearance. Stage 1 is the EUA regulatory pathway. And in support of Stage 2, we will continue our clinical studies throughout the respiratory season in the Northern Hemisphere this winter and plan to submit for full clearance next year.
Moving to our menu expansion efforts in the sexual health category. We are in late-stage development and plan to submit our Herpes + Mpox multiplex test under an EUA. We've had constructive conversations with the FDA regarding our validation plan for our submission. This test will allow us to build out our Mpox authorization last year to serve the very large, underserved point-of-care herpes testing market. With the addition of herpes, this test has strong potential to be a go-to test for anyone experiencing a lesion in the sexual health context. We still plan to submit for EUA in Q2 2024 and would expect to receive authorization by year-end.
Moving to our chlamydia and gonorrhea test. This test is development complete and ready to enter into clinical studies. We have sites contracted, and the IRB process is complete. However, we strategically decided to delay the start of our clinical studies for chlamydia and gonorrhea test to preserve cash in the near term. This action is similar to what we decided with the strep throat program.
We remain committed to our full pipeline of respiratory and sexual health test while being mindful of the need to balance near-term costs and long-term opportunity and feel we have a very strong near-term pipeline in both categories. As soon as we receive FDA authorization, we'll be ready to launch into our existing sales channels and then continue progressing menu expansion such as the chlamydia and gonorrhea and strep throat test through clinical studies.
As a reminder, all of the Cue Health Monitoring System tests show the same cartridge backbone and manufacturing process, including our combined Flu + COVID + RSV test. Our new testing products will be made on our automated production lines without significant additional capital investment. We've demonstrated reliable production at scale, having produced and sold over 17 million molecular tests to date.
As I mentioned earlier, we've made significant progress on the Cue Integrated Care Platform, our solution that seamlessly extends the capability of our foundational Cue Health Monitoring System. In its current form, the platform enables an end-to-end customer journey from obtaining an accurate diagnosis to consultation with the health care providers through our apps to receiving treatment via delivery or local pharmacy pickup.
We have integrated many of these building blocks over the last 18 months. In 2022, we launched Cue Care, allowing for a video consultation with clinicians and prescription delivery. Since then, we've seen traction with our installed base. And today, we offer tests and treatments across the care spectrum, including not just antivirals but therapeutics ranging from GLP-1 to treatments for STIs.
In summary, 2023 was a year of significant accomplishment by the team at Cue, and we're well positioned for an exciting 2024 with a much lower cost structure as we continue to expand our test menu, drive adoption of our integrated care platform and empower people to live their healthiest lives. We look forward to updating you on the progress in the coming quarters.
With that, I'll turn the call over to Aasim.
Thank you, Ayub, and good afternoon. Now let's walk through our fourth quarter financial results and first quarter guidance. Cue's fourth quarter total revenue was $18.8 million compared with $17.5 million in the third quarter of 2023. In the quarter, our private sector contributed 91% or $17 million of sales. Public sector revenues were $1.8 million for the fourth quarter. Total test cartridge sales were $15.5 million.
Q4 product gross profit was a loss of $18.4 million. Adjusted for onetime inventory charges, product gross profit was a loss of $2.7 million. Gross profit is impacted by lower manufacturing volumes and includes noncash items. Excluding depreciation, amortization and stock-based compensation, our adjusted product gross profit would be positive.
Total operating expenses in the quarter were $48.3 million, excluding cost of revenue and the noncash impairment of long-lived assets. Q4 operating expenses were down 49% from the year ago quarter due to our cost reduction efforts. Sales and marketing expenses were $6.2 million in the fourth quarter, a decrease of 68% from Q4 2022 driven by a decrease in payroll, digital and marketing costs. R&D expenses were $32.2 million for Q4, a decrease of 43% from $56.1 million of spend in Q4 2022. We continue to remain focused on the development of our near-term menu. G&A expenses were $9.9 million during the quarter, a decline of 48% from Q4 2022 spend of $19.2 million.
In the quarter, we recognized a noncash impairment charge of $83.6 million for some of our manufacturing lines due to low current volumes. Having said that, these lines are usable once volume picks up. As a result, GAAP net loss in the fourth quarter was $148.4 million or $0.96 per share. Adjusted for onetime inventory and noncash impairment charges, net loss was $49.1 million or $0.32 per share. Adjusted EBITDA was a loss of $24.4 million.
Moving on to full year 2023. Cue's total revenue was $70.9 million. Private sector revenue accounted for 89% or $63 million, and public sector revenue accounted for 11% or $7.9 million. Test cartridge sales were $58.5 million in 2023. Adjusted product gross profit for 2023 was a loss of $35.2 million and excludes the disputed vendor payment and onetime inventory charges.
Adjusted operating expenses for 2023 were $240.6 million, excluding cost of revenue. Sales and marketing expense was $32.6 million. R&D expense was $150.6 million, and G&A expense was $57.4 million. Adjusted operating expenses exclude the previously mentioned impairment charge of long-lived assets and restructuring expenses. Adjusted net loss for the full year 2023 was $267.2 million or $1.75 per share. And adjusted EBITDA for the year was a loss of $163.8 million.
Moving to the balance sheet. We ended the year with cash of $80.9 million.
Now I'd like to move to our guidance. We expect revenues of $9 million to $11 million for the first quarter.
With that, I would like to thank you for your attention, and I'll now turn the call over to the operator for questions.
[Operator Instructions] Our first question will come from the line of Tejas Savant with Morgan Stanley.
Our next question will come from the line of Matt Sykes with Goldman Sachs.
Maybe just first for you just on menu expansion strategy. Just curious as to how you're thinking about it now. I mean I know you're submitting additional information for the flu and the RSV, but you've also got the BARDA contract for the multiplex test. Is there a rationale for continuing the work on the stand-alone tests and not just skipping to the multiplex given you've got the funding from BARDA? Like are there commercial reasons people still want standalone tests? Are you too far along in the clinical trial portion to kind of give up on the stand-alone test? I just would love to get kind of your thoughts on how you're thinking about that.
Thanks, Matt, for the question. With RSV, we do have the de novo submitted. We already went and got the additional clinical data for infants and elderly. We've submitted it. We feel really good about the performance, and we're just waiting for a decision at this point. And with flu, we have the de novo submitted. We went and got the additional flu B per the FDA request. Feel really good about that clinical performance, and now we're just generating some stability temperature -- stability at higher storage temperatures. And not only those, but we have the Herpes + Mpox. Herpes is super valuable. We see this as a transformative offering. There's really no additional point-of-care test. And then as you pointed out, Flu + COVID + RSV is a really great opportunity. Excited. It's fully funded by BARDA. It's in a really good place. And so the way we look at combo test versus single test, they both have a place in the market. There is no approved test for RSV in the home at all, and it's a valuable test in the point of care as well.
So it's also a risk mitigation strategy. You have -- of course, a lot of people will prefer the Flu + COVID + RSV test over an RSV test, but at the same time, being able to bring that test to market soon and then follow up with something that has additional capability, that's our strategy. And from a reimbursement perspective and the point of care, there's different billing codes, and so it could work really well to have both single target assays as well as combo tests.
Got it. Very helpful. And then just any color you can provide on sort of the performance and/or sort of materiality of revenues in the Cue Lab business?
Yes. From a Cue Lab, Cue Pharmacy standpoint, we launched that last year, as you know. We're seeing some good trends there. We think it's a large market. So we think over time, this will be a meaningful part of our business. At this point, we're not breaking out those revenues.
Our next question will come from the line of Mark Massaro with BTIG.
Could you remind me of the size of the herpes, Mpox market? Your decision to delay the CT/NG clinical studies are a little bit surprising given that it's a well-understood market. It's a very large market. And so maybe could you just walk me through the rationale to delay the start of the CT/NG clinical studies? And maybe -- and I understand the rationale to preserve cash, but can you just give us maybe a ballpark sense of what the clinical trial for CT/NG would cost as you pursue it relative to some of the other studies like herpes and Mpox?
Yes. Good question. So Herpes is the most common STD. Chlamydia and gonorrhea are very common as well, but herpes is the most common. And the big difference here in terms of how we look at the sort of near-term opportunity and the cash needs is that there's an EUA pathway for the Mpox + Herpes combo. We already have the Mpox test authorized, and we're just building on that to add the herpes detection there. So it's a very different sort of regulatory costs or clinical study type cost comparison between Herpes + Mpox and Chlamydia + Gonorrhea. So Chlamydia + Gonorrhea is a very attractive market as well. But Herpes + Mpox has an opportunity to be a really good market but with a much different cost profile for getting it through authorization. So we see that as potentially much more near term to revenue and with much less cash out to be able to get that validation done for authorization. So that's really the key dynamic at play.
Okay. That makes sense. And then maybe a question on the update that you provided on January 4, 2024, with respect to the FDA feedback that you received. I think you had indicated that the -- the EUA request was not a priority. And so they decided they weren't going to advance review of the EUA COVID. Yet you are planning to pursue herpes and Mpox as an EUA. Have you had conversations with the FDA about the EUA pathway? Just curious what your confidence is that, that would be a priority for the agency.
Yes. With Flu + COVID, we feel really good about the performance, the effectiveness and the value of that test. In particular, we felt really good about the clinical performance. It's better than what we feel like we've seen in the market. It's been authorized. So we've been working with the FDA. There's an active dialogue to see how we can get that test through the process and address the feedback that they provided. And as a reminder, we do have the Flu + COVID + RSV test in the way. We're expecting to get that into clinical study this summer in the Southern Hemisphere, and that's going to have a 2-stage approach. So there's an EUA pathway for it for this year, but we're also following through all the way through the full submission, and that's all BARDA funded.
So with regards to the sort of wording there, they are still looking at EUAs, and it's really just about addressing the feedback more than I think it is about how they prioritize it. That's their language, but I think that at the end of the day, it's really about addressing feedback and getting the test through the regulatory process.
So certainly, there are time-to-market advantages for the EUA process. And so we want to continue to leverage that where we can. But that's not in place of a de novo. It's really just a staged approach. So we wouldn't say that EUA is a sort of permanent objective. It's the sort of staged approach to getting to that full de novo like we did with COVID. We first got EUA. Then we got the de novo for it.
Okay. Got it. And then maybe one for Aasim. Just as we think about extending the cash runway, obviously, you announced another workforce reduction in January. Just can you give us a sense for -- was that a $30 million use of cash in Q4? And maybe walk me through how you're thinking about cash utilization per quarter here in '24.
We've taken significant measures to reduce the cash utilization. In fact, despite a decline in COVID revenue across the industry in 2023, our cash utilization in '23 was actually less than it was in 2022. So as you mentioned, we've taken $200 million out from a cost structure standpoint on an annualized basis. And look, going forward, we continue to remain very focused on our strategies highlighted in our prepared remarks. And we continue to remain very judicious with where we deploy our cash. So continue to remain focused on decreasing cash utilization and increasing runway.
Okay. But no targets to provide us with?
Yes. As we think about cash and go forward, et cetera, as I said, we continue to decrease our cash utilization. One of the things I've mentioned in the past as well is we continue to evaluate opportunities and options to bolster our balance sheet.
[Operator Instructions] Our next question will come from the line of Tejas Savant with Morgan Stanley.
This is Yuko on the call for Tejas. Apologize for earlier. We had some technical issues on our end. A couple of questions for me. Could you comment on your comfort with the pricing structure for both enterprise and consumer settings? And do you anticipate that current pricing for both the Reader and the cartridges can still generate enough demand?
Yes. The pricing that we've adopted, there's a lot of factors that go into that. We look at demand. We look at also reimbursement. And if you look at the Reader in particular, you mentioned that, if you compare that to other laboratory analyzers in the point-of-care space, you're looking at a literal order of magnitude difference in the sort of cost to get the Reader versus the laboratory analyzers that have similar capabilities.
So we feel really good about the Reader and the cost structure there. And there are various programs in both the consumer side and the point-of-care side that allow the customer to get the Reader at no cost. And so really, what we're -- our goal is to increase the installed base because as we've seen and as we mentioned for Q4, we see a lot of pull-through on each install -- in each Reader that's in the field.
And so the dynamic with the Reader is you want to get that out there, and then you want to allow the customer to get value from that and continue to purchase cartridges, and that dynamic will be even better with more menu. And so that's really what -- why menu expansion is our #1 priority, because we want that installed base to pull through and get value out of a lot of additional menu items.
Got it. And also, earlier in the year, you made some changes to your Board of Directors. And you also plan to add additional independent directors to the Board in the future as well. Since the changes to the Board, should we anticipate any meaningful changes to your business strategy? What are some focus areas that are in discussion?
We announced a few weeks ago that we entered into the cooperation agreement with Tarsadia to add Board member Rishi. And this is really so we can move forward in harmony with our shareholders and really incorporate their point of view. We feel good that those conversations are now behind us, and Cue can execute on our strategy. I think this shows our commitment to working with our shareholders.
One of the main agenda items that we've been hearing was, look, cost structure needs to come down, and we have been actively working on that last year. And as I mentioned in my prepared remarks that we have achieved over $200 million of cost reduction in the year. So we think we're really executing on what our shareholders want to -- we're maximizing the shareholder value with our approach of lowering the cost, executing on menu expansion as our #1 priority. So I think that what you've seen is that we've incorporated these strategies into our strategy as well.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.